Compliance November 2, 2007

Derivative Action Certification not Available for Fiduciary Breach Claim

November 2, 2007 (PLANSPONSOR.com) - The U.S. District Court for the District of Connecticut has rejected a plan participant's motion to certify her fiduciary breach lawsuit as a derivative action on behalf of the plan.
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In its opinion, the court explained that such suits must be undertaken in a “representative capacity on behalf of the plan.” The court concluded that the certification is not available for this case because a derivative action is one that the represented entity could have brought on its own behalf, and the plan itself could not have filed the action.

Yvette Champagnie, a participant of a 401(k) plan sponsored by KLC Inc., brought the action against defendants Alan H. Kaufman and Laurinda Lee, the trustees of the plan, in an attempt to remedy the denial of a previous claim by another plan participant, Karen Coan. Both Coan and Champagnie claimed the trustees breached their fiduciary duty to plan participants by mismanaging the assets of the plan.

In the Coan case, the 2 nd U.S. Circuit Court of Appeals agreed with a district court’s determination that Karen Coan failed “to do anything to demonstrate that her action actually was intended to benefit former plan participants other than Karen Coan.” (See Court Denies Former Participant Claim for Fiduciary Breach )

When Champagnie brought her case, the defendants argued that she lacked standing to bring her suit because she was not actually a “participant” in the relevant ERISA plan – the plan was terminated in 2001, and Champagnie received a lump sum payment of her benefits, the opinion said. But in June 2007, the court ruled that Champagnie did have standing to bring her claim.

In Coan, the 2 nd Circuit indicated that joinder of other participants usually will be deemed sufficiently “representative” such that the suit will not be barred on the basis that it seeks only individual relief. Champagnie asserted that joinder would “likely serve no purpose” since the relief may only go to the plan itself, but the court pointed out that, since the plan was a defined contribution plan, participant accounts would likely be entitled to a portion of the plan’s recovery.

The opinion in Champagnie v. Kaufman is here .

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